Earnings Take Center Stage, Household Debt and Delinquencies Pile Up

Barry Adams
06 Feb, 2024
New York City

Benchmark indexes lacked direction and struggled to advance after traders attempted to shake off rate path worries.

Investors have begun shifting their attention to broader economic development and corporate earnings after months of rate uncertainty and confusing messaging from the U.S. Federal Reserve.

The U.S. economy has added about 5 million jobs over the last two years, when interest rates were hiked from 0.25% to 5.5%, surprising most economists and policymakers.

The U.S. economy has proven to be resilient, and the labor market has expanded payrolls, contrary to predictions of an economic slowdown or a recession by most market watchers and economists.

Moreover, inflation has fallen from a high of 9% to close to 3% over the last year, but still above the Fed's target of 2.0%, which may be harder to achieve.

Investors have now pinned their hopes of a rate cut after the policy meeting in May, but many investors are worried that the central bank may not be ready to lower rates until the end of the third quarter.

 

Household Debt Reaches $17.5 Trillion; Delinquency Rates Rise 

Most of the decline in inflation is driven by the sharp fall in energy prices and the easing of pandemic-era supply chain disruption, both of which are not impacted by the Fed's monetary policy.

The Federal Reserve may have a harder time bringing down inflation to 2.0% over the next year if energy prices rebound because of the ongoing tensions in the Middle East and resurgent home prices if mortgage rates ease.

Rising interest rates have started to impact consumer wallets and delinquencies on consumer loans are rising across all types of loans, New York Federal Reserve reported Tuesday.

Total household debt swelled by $212 billion to $17.3 trillion at the end of the final quarter of 2023.   

Total debt increased about 1.2% from the previous quarter and rose 3.6% from a year ago. 

New York Fed researchers said the rise in credit card debt is more worrisome.

Credit card balances increased by $50 billion to $1.13 trillion over the quarter, while mortgage balances rose by $112 billion to $12.25 trillion. 

Auto loan balances rose by $12 billion to $1.61 trillion, continuing an upward trajectory seen since 2011. Delinquency transition rates increased for all debt types except for student loans.  

Seriously delinquent debt for credit card balances, past due by more than 90 days, surged 59% to 6.4%, after average credit card interest rate jumped to 21.5% from 14.5%. 

Mortgage debt increased 2.8% in 2023, and delinquency rate increased by 0.25  percentage point to 0.82%. 

 

U.S. indexes and yields

The S&P 500 index decreased 0.03% to 4,942.91, and the Nasdaq Composite fell 0.2% to 15,567.95.

The yield on 2-year Treasury notes increased to 4.43%, 10-year Treasury notes declined to 4.11%, and 30-year Treasury bonds edged down to 4.31%.

WTI crude oil increased $0.39 to $73.18 a barrel, and natural gas prices decreased 5 cents to $2.02 a thermal unit.

Gold decreased by $11.75 to $2,036.13 an ounce and extended the previous week's gains after the U.S. dollar rebounded in international trading.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.32.

 

U.S. Stock Movers

Palantir Technologies surged 15.8% to $19.38 after the company reported a jump in its commercial customers.

Revenue in the fourth quarter jumped 20% to $608.4 million from $508.6 million, net income soared to $93.4 million from $30.9 million, and diluted earnings per share advanced to 4 cents from 1 cent.

The company said demand for its AI-driven and large language-based platform is "unrelenting."

The company also said the number of commercial customers increased by 55% to 221 from 143 a year ago.

The company forecasted first-quarter revenue between $612 million and $618 million and full-year revenue between $2.65 billion and $2.67 billion.

Chegg declined 7.5% to $8.60 after the online textbook platform operator estimated lower-than-expected revenue in the first quarter.

Revenue in the fourth quarter declined 8% to $188 million from $205.2 million, net income rebounded to $9.6 million from $1.9 million, and diluted earnings per share rose to 9 cents from 1 cent a year ago.

The company estimated revenue in the first quarter to range between $173 million and $175 million, gross margin between 73% and 74%, and adjusted operating earnings between $43 million and $45 million.

NXP Semiconductors rose 3% to $227.60 after the advanced semiconductor chip maker reported better-than-expected quarterly results.

Revenue in the fourth quarter increased 3% to $3.4 billion from $3.3 billion, net income declined to $703 million from $734 million, and diluted earnings per share dropped to $2.68 from $2.76 a year ago.

Revenue in the full-year increased 1% to $13.3 billion from $13.2 billion, net income was unchanged at $2.8 billion, and diluted earnings per share edged up to $10.70 from $10.55 a year ago.

 

 

European Markets Closed Higher 

European markets hovered near recent highs, and bond yields advanced, but the euro edged lower against the U.S. dollar.

Benchmark indexes in Paris, London, and Frankfurt hovered near the flatline as investors reviewed the latest earnings results and economic update from Germany.

 

Germany Factory Orders Expanded

German factory orders rose 8.9% from the previous month and advanced 2.7% from a year ago in December, The Federal Statistics Office, or Destatis, reported Tuesday. 

 

Eurozone Retail Sales Declined

Eurozone annual retail sales declined for the fifteenth month in a row after elevated borrowing costs and high inflation weighed on demand. 

Retail sales declined 1.1% from the previous month in December and fell 0.8% from a year ago, Eurostat reported Tuesday. 

Food, drinks, and tobacco sales declined for the third month in a row and declined at a faster pace of 1.6% compared to 0.1% in November. 

Non-food products sales fell by 1.0% for the first time after rising in previous two months.  

 

China-linked Stocks In Focus 

China-linked stocks were in focus after China's sovereign wealth fund intervened and acquired exchange-traded index funds to bolster China's stocks.

On Tuesday, Central Huijin Investment, an arm of China's $1.3 trillion sovereign wealth fund, confirmed its purchase of index-based exchange-traded funds.

The sovereign wealth fund's arm also confirmed its plans to make additional purchases but did not elaborate on the amount and timing of these acquisitions.

Benchmark indexes in Shanghai and Hong Kong fell for the fourth year in a row in 2023, and the Hang Seng index dropped 9%, its second worst January decline since 2016.

 

Europe Indexes and Yields

The DAX index increased 0.7% to 17,024.28, the CAC-40 index rose 0.6% to 7,634.61, and the FTSE 100 index inched higher by 0.9% to 7,683.16.

The yield on 10-year German bonds edged up to 2.31%; French bonds inched higher to 2.81%; the UK gilts edged higher to 4.01%; and Italian bonds inched lower to 3.87%.

The euro edged lower to $1.072, the British pound inched higher to $1.254, and the U.S. dollar gained to 87.24 Swiss cents.

Brent crude increased $0.32 to $78.31 a barrel, and the Dutch TTF natural gas increased by €0.45 to €28.80 per MWh.

 

Europe Stock Movers

UBS Group declined 2.5% to CHF 25.07 after the Swiss bank reported its second consecutive quarterly loss in a row.

Nokia Oyj fell 1% to €3.32, and the Finnish telecom equipment maker signed a cross-licensing arrangement with China-based telecom company Vivo.

BP plc gained 5.5% to 478.01 pence after the energy explorer and distributor announced a stock repurchase plan of $1.75 billion and the company reported its second highest annual profit in a decade.

Beiersdorf AG inched up 0.3% to €140.80 after the German personal care products maker hiked its dividend and announced a stock repurchase plan.

 

China Intervention Lifts Shanghai and Hong Kong Stocks, Australia Holds Rates Again

Markets in Asia lacked direction but retained a downward slide, and investors reacted to domestic earnings and local economic news.

Asian markets looked beyond the rate decisions of major central banks as investors recalibrated global interest rate expectations after Fed Chair Jerome Powell stressed the need for higher interest rates until inflation is on a sustained downward path to 2%.

Bond yields advanced in Asia after Powell's comments tracked the higher yields on the U.S. Treasury notes.

Moreover, the Japanese yen, Indian rupee, Chinese yuan, and Korean won eased against the U.S. dollar.

The Reserve Bank of Australia held its cash rate steady at 4.35% and reiterated its commitment to bring down inflation to its target range of 2% to 3% by 2025.

 

Japan Indexes Fall Tracking Lower U.S. Markets

Market indexes in Japan turned lower after rising in the previous two sessions.

The Nikkei and the Topix indexes declined around 0.5% after the U.S. dollar edged higher, the yield on 10-year U.S. Treasury notes advanced, and Fed Chair Jerome Powell dashed hopes of an imminent rate cut in March.

The Nikkei 225 average declined 0.5% to 36,185.90, and the yen edged lower to 148.15 against the U.S. dollar.

On the economic front, Japan's household spending declined more than expected by 2.5% in December, the tenth monthly decline in a row.

Mitsui Fudosan declined 1.2% to ¥3,861.0 and trimmed gains from the previous session when Elliott Investment Management called for a one trillion yen stock buyback.

Mitsubishi UFJ, Daikin Industries, and Sony Group declined between 1.5% and 3.0%.

 

China Stocks Rebound After Government Intervention

Stocks in Shanghai and Hong Kong advanced after a unit of China's sovereign wealth fund stepped up its stock purchase and the Chinese regulator reiterated its commitment to stabilizing financial markets.

The CSI 300 index gained 3.5% to 3,311.50, and the Hang Seng index advanced 3.7% to 16,079.43.

On Tuesday, Central Huijin Investment, an arm of China's $1.3 trillion sovereign wealth fund, confirmed its purchase of index-based exchange-traded funds.

The sovereign wealth fund's arm also confirmed its plans to make additional purchases but did not elaborate on the amount and timing of these acquisitions.

The China Securities Regulatory Commission also warned investors against market manipulation and devising schemes that benefit from market slumps.

Alibaba Group soared 7.7%, Meituan added 6.6%, Tencent Holdings gained 4.4%, and JD.com increased 2.8%.

Longfor Group advanced 9%, China Resources Land gained 5%, and Sun Hung Kai Properties edged up 0.1%.

 

India Indexes Inch Closer to Record Highs Ahead of Rate Decisions

Stocks in Mumbai traded higher, and benchmark indexes rebounded from losses in the previous session.

The Nifty and the Sensex indexes advanced 0.3% amid strength in large- and mid-cap stocks.

Banks, financial services, energy and power generators and distributors, port operators, and chemical makers were among the leading gainers.

The Reserve Bank of India is expected to hold rates steady for the sixth consecutive time at the end of its policy meeting on Thursday.

The central bank is likely to follow the leads of other central banks and hold rates steady as inflation continues to decline around the world and pandemic-era supply disruptions are ending.

The Sensex index increased 166.67 points to 71,898.19, and the Nifty index gained 74.90 points to 21,846.60.

On the Mumbai stock exchange, 234 stocks traded at their 52-week highs and 27 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds held steady at 7.08%, and the Indian rupee strengthened ₹83.03 against the U.S. dollar.

Bharti Airtel eased 3.3% to ₹1,113.60 after the wireless telecom carrier reported its latest quarterly results.

Consolidated revenue in the December quarter increased 5.8% to ₹37,988.5 crore, and net income soared 54% to ₹2,442 crore from a year ago, respectively.